Inflation at 3 Year low fails to Inspire India Stock Markets

The wholesale-price index or the WPI Inflation Gauge rose 6.62% in January from a year earlier, after climbing 7.18% in December. This was the slowest pace since November 2009 and below the expected 7% annual rise. If this deceleration is sustained & inflation stays lower than RBI’s (Reserve Bank of India) projection that would give RBI the comfort to cut rates by 25 basis points in March. India last month became the first major Asian nation to lower borrowing costs in 2013 as the central bank moved to back government policy changes aimed at reviving private investment. The risks limited the central bank to a quarter-point reduction in interest rates to 7.75% in January, the first cut since April last year. At the same time, Governor Duvvuri Subbarao signaled the space to reduce rates again is limited, and the government has vowed to curb spending in the Feb. 28 budget to damp price increases. Fuel and power prices rose 7.06% in January from a year earlier, compared with an annual rise of 9.38% in December while Food articles climbed 11.88%. Non-food manufactured goods prices, a measure of core inflation, rose 4.08% in January from a year earlier and compared with 4.19% in December. Indian CPI – consumer-price inflation reached 10.79% last month, the second highest in the Group of 20 major nations. Data this week showed industrial output fell unexpectedly for a second month in December and that the trade gap in Asia’s No. 3 economy swelled to $20 billion in January, one of the nation’s widest monthly shortfalls. Industrial production unexpectedly shrank for a second straight month in December, casting doubt on the government’s view that the economy is showing signs of recovery. Output has grown in just three of the last nine months. Inflation remains “high,” investment has declined and the “external sector is very vulnerable,” Subbarao said Feb. 11. The RBI had forecast a moderation in headline inflation in the January-March quarter when it cut interest rates by quarter percentage points last month. But, it also warned that inflation would have to ease more than expected, and the current account deficit would have to come down, to enable the bank to make further reductions in rates. RBI will also be watching Finance Minister P. Chidambaram‘s annual budget statement on Feb 28, to see how the government intends to reduce a swollen fiscal deficit and boost economic growth. The central bank regards fiscal consolidation by the government as a necessary condition for Monetary Easing.

Stock Markets Decline despite Low Inflation news:

Earnings-hit Stock Market had very little to look forward to on Thursday, although January inflation numbers raised hopes that WPI inflation will go down in fiscal 2013. Sales at Tata Motors Ltd.,India’s largest automaker, plunged 30% in January. The stock had closed down 2.6% in anticipation of bad results. Maruti Suzuki was the other auto stock which lost in trades. The stock closed down over 3%, followed by Hero MotoCorp which closed down 1.5%.The list of disappointment includes State Bank of India, Dr Reddy’s, IVRCL, Educomp, Shipping Corporation of India and IFCI, all of which failed the street with their quarterly numbers. The sell-off that followed forced the 50-stock Nifty to close near the low point of the day. The BSE-Sensex closed down 139.94 points at 19468.14, and the Nifty closed 36 points down at 5896.95. Capital goods stocks fell across the board. Bhel, BEML, L&T and ABB shed by 0.75% to 2.32%. Siemens declined 4.65%. Bharti Airtel suffered a 4% decline, followed by Larsen, Seimens, Wipro, Power Grid and BPCL. Each lost between 3-4% from their previous closing figures. SBI said that the Government has decided to infuse capital funds to the tune of Rs 3004 crore in the bank by way of preferential allotment of equity in favour of the Government of India. The Mid-Cap index was off about 1.5%. The BSE Small-Cap index shed over 1.5%. Index heavyweight and cigarette maker ITC edged lower in choppy trade. The Stock Markets alternately swung between gains and losses amid initial volatility. Intraday volatility continued in morning trade. The Sensex pared losses after hitting fresh Intraday low in mid-morning trade. Volatility continued as key benchmark indices once again slipped into the red after moving into positive terrain from negative terrain soon after the latest data showed deceleration in headline inflation in January 2013. The National Stock Exchange of India after trading hours on Wednesday, 13 February 2013, said it has decided to replace two stocks: Siemens and Wipro, with IndusInd Bank and NMDC in the 50 unit CNX Nifty index with effect from 1 April 2013. The Ministry of Finance on 8 February 2013 said that since the GDP growth is turning around, it is likely that the CSO’s advance estimate of 5% GDP growth for 2012-13 will be revised upwards and the final estimate will be closer to the finance ministry’s estimate of a growth rate of 5.5% or slightly more. Early sign of an upturn in the economy are evident in the year on year growth in Union Excise Duty of 16% and of 33% increase in service tax in April-December 2012.

Nifty Movements Technically Speaking:

Nifty Feb Futures have declined way past our first target of 5905 after having advised to enter sell positions at 6085 around 24 Jan 2013. Nifty has the potential of gathering substantial support around the 5842 to 5860 range & could bounce upside. This rise then, if supported by substantial momentum may lead to new highs close to 6175 also. A very pocket & people friendly Union Budget might just do the trick. But if the 5842 level is breached along with strong downside global cues, Nifty could then see sharp declines to our earlier given targets of 5545 to 5563 also.